The stock market has corrected about 10% this year to 18,000-levels but analysts warn that the time is yet not yet right for small investors to invest in shares. However, if you are open to the idea of taking risks, systematic investment plans (SIPs) of mutual funds can offer good long-term returns.
“The US-led coalition may attack Syria – and that will impact equity markets,” said VK Vijayakumar, Investment Strategist, Geojit BNP Paribas Financial Services. Though Syria is not a major oil producer, war in West Asia will push up crude oil prices.
“India’s oil import bill will balloon and adversely affect the current account deficit. This could even lead to a possible downgrade of India’s sovereign rating,” he added. If this happens, Indian equities will crash even further.
“If India’s rupee slides further to 70 or 72, the Nifty could slide below 5,000 levels,” said Ankit Swaika, Senior VP, Religare Macquaire Wealth Management. “There might be some pullback in the equity segment but in the near term (next month or so) the current weakness is expected to continue,” he added.
“Till elections are over, the market is likely to remain highly volatile with a negative bias,” said G. Chokkalingam, MD, Centrum Wealth Management.
However, there are still some sectors that look positive. A caveat will be in order here: please consult experts or your investment advisor before buying any stock. The IT and pharma sectors look quite attractive despite their recent run up as the depreciating rupee would help, said Swaika.
The FMCG sector is also expected to fare reasonably well during the downturn.
“It is a good time to buy into the equity class in a calibrated fashion, and look at some beaten down banking stocks,” says Vijayakumar. HDFC Bank is priced near its likely bottom, and Axis Bank, and Federal Bank are also attractive.
He is also positive on commodity stocks like NMDC, Sesa Goa, and Tata Steel which have potential to rise from their current levels thanks to the signs of a recovery in China.
“Currently, currency is the biggest positive for India’s IT industry, as most of its revenues are in foreign currency,” said Vinay Khattar, head of research, Edelweiss. “According to our calculations, for every 1% depreciation in the rupee against the dollar, the EBITDA margins of Indian IT companies rise 30-40 basis points or one hundredth of a percentage point,” he said.
By that measure, the 20% depreciation in the rupee’s value against the dollar can improve the IT industry’s margins by 6-8 percentage points. Then, the steady US economic recovery is the biggest positive for the Indian IT industry, as it derives over 60% revenues from there.
“Our top picks in the IT sector are Wipro, HCL Technologies, Mindtree and KPIT Cummins,” he added.
“SIPs are a suitable investment avenue to withstand market volatility, as they allow you to take advantage of market volatility without having to time the markets,” said Gopal Agarwal, CIO, Mirae Asset Global Investments.
SIPs are suitable to combat both the equity market volatility as well as the rupee slide that has been causing uncertainty in equities.